Insurers: Prepare for the new distribution model
The protagonist of the current world, COVID-19, is also, most inevitably, the protagonist of this new entry in our blog, focused on the impact that this pandemic has and will have on the current distribution model in the insurance sector.
For this, we have taken as a reference the interesting article by McKinsey – How insurance can prepare for the next distribution model.
The actions adopted to face the current health crisis —social distancing, confinements… – are profoundly affecting the way in which people interact in all sectors and regions. Activities previously seen as essential in physical person have been shifted to digital and remote channels. This variation is having a direct impact on the distribution of insurance and the changes will continue in the long term.
As most insurance companies have already taken steps to address the immediate effects of COVID-19, by moving employees to remote offices and expanding online customer service channels, they focus now on the next set of medium and long-term challenges, including how to redefine distribution in a more remote world.
To meet these challenges, insurers will need to rethink their distribution model in three dimensions: customers, sales force, and enablers (such as investing in data and digital tools). By doing so, they will be more prepared for the unpredictable.
The reality is that physical sales forces and intermediaries are still responsible for most of the insurance distribution in all geographies and business lines, although in the last decade the percentage of the business carried out through these Channels has been changing as some customers have migrated to the Internet. However, it is clear that continued physical distancing is changing this landscape.
In this sense, agents used to personal interactions are working to reinvent themselves in order to adapt to this new reality, although they face problems that insurers will have to solve, such as handling legacy products that require offline execution, including physical signatures and medical evaluation. Therefore, it is necessary to invest in digital tools that facilitate the activities of both agents and clients.
Moreover, customer demand for self-service in today’s environment has only accelerated the undeniable importance of digital. A recent survey focused on consumers in Spain during confinement, conducted by McKinsey, revealed that digital access in the insurance sector has increased by almost 30% since the start of the pandemic, although it also showed that the level of customer satisfaction with digital distribution in this sector was the lowest of all. The main reason for dissatisfaction was the “difficulty facing when using the tools”. Therefore, insurers should invest in expanding and improving self-service tools, in order to improve customer and agent satisfaction.
Summing up, the areas in which insurers should focus their actions are three: clients, sales force, and facilitators.
Regarding customers, the next normality requires studying how to achieve the effectiveness of a face-to-face relationship between agents and customers in a virtual environment. In this sense, the incredible advances in telemedicine are here to stay, and nearly half of the clients who have used virtual medical consultations intend to continue using them once the crisis subsides.
Regarding the sales force, insurance companies can focus on three issues: the first, launch a distribution force only remotely, which, together with the face-to-face (traditional), can configure a hybrid model that takes advantage of the economic advantages that the online model implies since it allows agents to serve a much higher number of clients than in the traditional way and translates into lower commission costs for sales; the second, to emphasize teamwork between insurers and agents, since the data shows greater productivity through this working formula; and third, expanding partnerships and distribution agreements, enabling it to provide products to more customers in need.
Investing in enablers is also required, as digital distribution will bring important benefits to insurers, such as increased resilience through a potentially multi-wave crisis, rapid response to current and future demands of clients and agents, and the increase of the productivity of the agents. However, before going into it, it is essential that insurers evaluate and identify gaps in the ideal client and agent journey for their specific business. The findings will help you develop an agile roadmap tailored to your business.
Another relevant factor in distribution is data. Insurance companies often have massive amounts of stored data in legacy systems or paper filing cabinets, and it is essential to extract it in order to consistently identify and respond to customer needs.
Finally, in the long term, insurance companies will have to consider three actions when re-evaluating their distribution strategy and setting the shift towards digital: deciding what is their optimal combination of distribution channels; identify what modifications are required and the new technologies to adapt to the next normality, developing the appropriate technological roadmap to replace the typical offline interactions (such as signatures and application and presentation forms or the incorporation of clients); and be prepared to make strategic M&A decisions to increase distribution.
Changing the distribution operating model will take time, as it not only involves employing new tools and assets, but also requires significant capacity development that affects other parts of the value chain, such as products and claims. The leaders of the distribution of the next normal will be the ones who start working today on the long-term imperatives.
Thus, we cannot wait any longer to start this process, since starting is better than waiting for perfection.